In the last 12 months, both Enbridge (TSX:ENB)(NYSE:ENB) and TransCanada (TSX:TRP)(NYSE:TRP) stocks have declined by about 14% or more. Pullbacks like these are a good reason to consider picking up shares of these proven dividend-growth stocks. Let’s compare the two to see which may be a better buy today. Dividend safety At about $42.50 per share as of writing, Enbridge offers a dividend yield of about 6.3%. Based on its distributable cash flow per share of $2.47 year to date and a quarterly dividend per share of $0.671, Enbridge’s payout ratio is about 55%. At about $53.40…

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In the last 12 months, both Enbridge(TSX:ENB)(NYSE:ENB) and TransCanada(TSX:TRP)(NYSE:TRP) stocks have declined by about 14% or more. Pullbacks like these are a good reason to consider picking up shares of these proven dividend-growth stocks.

Let’s compare the two to see which may be a better buy today.

Dividend safety

At about $42.50 per share as of writing, Enbridge offers a dividend yield of about 6.3%. Based on its distributable cash flow per share of $2.47 year to date and a quarterly dividend per share of $0.671, Enbridge’s payout ratio is about 55%.

At about $53.40 per share as of writing, TransCanada offers a dividend yield of about 5.2%. Based on its distributable cash flow per share of $3.08 year to date and a quarterly dividend per share of $0.69, TransCanada’s payout ratio is about 45%.

Based on the payout ratio, TransCanada offers a safer dividend.

Dividend growth in the past and into the future

Enbridge has increased its dividend per share for 22 consecutive years with a three-, five-, and 10-year dividend-growth rate of 19.9%, 16.4%, and 14.6%.

Enbridge has visible growth through 2020 with $22 billion of growth projects coming into service between this year and 2020. Management believes the projects will support average dividend growth of 10% from 2018 to 2020.

TransCanada has increased its dividend per share for 17 consecutive years with a three-, five-, and 10-year dividend-growth rate of 9.2%, 7.3%, and 6.3%.

TransCanada has $28 billion of near-term capital projects. Combined with the organic growth from its existing business, it aims for annual dividend growth of 8-10% through 2021.

Investors should be able to get greater dividend returns from Enbridge based on management’s dividend-growth targets for the next few years.

Valuation

The analyst consensus from Thomson Reuters has a 12-month target of $53.10 per share on Enbridge, which represents about 25% near-term upside potential. The consensus has a 12-month target of $67.60 per share on TransCanada, which implies a near-term upside of nearly 27%. So, TransCanada seems to be slightly cheaper.

Balance sheet strength

Both Enbridge and TransCanada have an investment-grade credit rating of BBB+.

At the end of the second quarter, Enbridge had a debt ratio of 0.56 (defined by total assets divided by total liabilities). It had about $60 billion of long-term debt, while it’s estimated to generate about $13 billion of operating cash flow on an annualized basis.

At the end of the second quarter, TransCanada had a debt ratio of 0.68. It had about $41.9 billion of long-term debt, while it’s estimated to generate about $6.4 billion of operating cash flow on an annualized basis.

These metrics indicate that Enbridge has a stronger balance sheet.

Investor takeaway

From a total returns perspective, investors can potentially get a slightly higher return of about 32% over the next 12 months in TransCanada versus a return of about 31% in Enbridge. In terms of which company you should buy today, it depends on which of the discussed factors you care more about.

Iain Butler has stumbled upon a little-owned stock he believes could be one of the greatest discoveries of his almost 20 years as a professional investor.

This is your chance to get in early on of what could prove to be a very special investment recommendation. Think about how many investing trends you've missed out on, even though you knew they were going to be big. Don't let that happen again.

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